A recent case out of the Seventh Circuit Court of Appeals reminds us of two important recurring yet contradictory themes in the law; words in an agreement can have no force of law and words not present in an agreement can be as important as the words in the agreement. Instructive in these themes is a recent case out of the Seventh Circuit Court of Appeals. In Apex Digital, Inc. v. Sear, Roebuck & Company, 735 F. 3d 962 (7th Cir. 2013) an issue, among others, before the court was whether a written agreement between Apex and Sears governed the payment terms of electronics products Sears purchased from Apex. The agreement expressly provided:

it was to be the only agreement between the parties;

it covered any and all purchases made by Sears; and

it cannot be modified or supplemented by course of dealing or oral communications between the parties unless in writing and signed by Sears.

Noticeably absent from the Agreement was any terms of payment.

Following the delivery of the products purchased by Sears, each month over the course of 14 months, Apex sent Sears electronic invoices that reflected a “Net 60” payment term and Sears’ electronic accounts payable system paid within 60 days. Sears instituted a holdback and charge-back policy as to each invoice to account for returns and defective products. More than four years after the last invoice issued by Apex, Apex sued Sears claiming that Sears owed more than $8,000,000.

Sears argued that Apex’s claim was barred by the statute of limitations under the Uniform Commercial Code (“UCC”) as suit was brought more than four years after the last invoice. Sears argued that the parties’ “course of dealing” established that “Net 60” days was a term of the Agreement and that each invoice was a separate transaction. Apex, in response, argued that was not possible as the Agreement was silent as to payment terms and the Agreement expressly prohibited modification or supplementation by course of dealing unless in writing signed by Sears.

In a resounding, “No”, the Court rejected Apex’s arguments and accepted Sears’ arguments. As to the “Net 60 Day” argument posited by Sears, the Court found that the absence of payment terms in the Agreement was important. Acknowledging that Illinois law instructs a court to follow the terms of an unambiguous agreement, the Court noted where the terms of payment are silent, the UCC allows an agreement to be supplemented to give full meaning to the parties’ intent. Since Apex and Sears treated each invoice on a Net 60 Day basis, “the parties clearly intended to operate under the “Net 60” payment arrangement. Holding that each invoice was a separate transaction and Apex did not file suit until four years after the last invoice, Apex’s suit was barred by the statute if limitations.

Take away – terms not in an agreement can be just as important as the terms in the agreement.